Question 1

Which of the following is not one of the factors in AASB 3 Business Combinations that guide the identification of the acquirer where 2 companies combine to form a new company?
A)The entity that has the smaller fair value.
B)The entity that has a significantly greater fair value.
C)The entity whose management is able to dominate the business combination.
D)The entity that gives up the cash or other assets where equity instruments are exchanged for cash or other assets.

Accepted Answer

AASB 3 does not consider the entity with the smaller fair value as a factor in identifying the acquirer. Instead, it focuses on factors like the entity with greater fair value, management control, and the entity giving up cash or assets.

Question 2

Which of the following statements is correct?
A)The legal acquirer under AASB 3 and the accounting acquirer under AASB 10 do not have to be the same entity.
B)The entity identified under AASB 10 as the parent will be the acquirer under AASB 3.
C)The legal acquirer is determined under AASB 3 as the entity that issues the equity instruments.
D)The accounting acquirer is the entity that becomes the controlling entity.

Accepted Answer

The answer of Which of the following statements is correct?
A)The...

Question 3

AASB 10 Consolidated Financial Statements requires that control be non-shared.

Accepted Answer

AASB 10 Consolidated Financial Statements defines control as "the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities" and requires that control be non-shared. This means that one entity (known as the parent) must have the power to govern the financial and operating policies of another entity (known as the subsidiary) in order for the subsidiary to be consolidated into the parent's financial statements. Control cannot be shared between multiple entities.

Question 4

Two entities A Limited and B Limited together form a third entity,C Limited.C Limited acquires A Limited and B Limited.In this situation,AASB 3 Business Combinations,adjudges that:
A)A Limited and B Limited cease to exist and C Limited is the acquirer.
B)the combined A Limited and B Limited,is the acquirer of C Limited.
C)C Limited is considered to be the acquirer.
D)C Limited is not to be considered to be the acquirer.

Accepted Answer

The answer of Two entities A Limited and B Limited...

Question 5

Kowloon Limited is an entity listed in Hong Kong.Kowloon Limited holds a 100% investment in Aussie Pty Ltd,an Australian based company,who in turn holds a 90% interest in Skippy Pty Ltd.Aussie Pty Ltd and the Aussie group (comprising Aussie and Skippy)are both non-reporting entities.Which of the following statements is correct?
A)Aussie Pty Ltd will be required to prepare consolidated financial statements as the ultimate Australian parent.
B)Aussie Pty Ltd will not be required to prepare consolidated financial statements as they are a non-reporting entity.
C)Aussie Pty Ltd will be required to prepare consolidated financial statements only if directed to do so by ASIC.
D)Aussie Pty Ltd will not be required to prepare consolidated financial statements as Kowloon is a listed foreign entity.

Accepted Answer

Since Aussie Pty Ltd and the Aussie group are both non-reporting entities, they are not required to prepare consolidated financial statements.

Question 6

Which of the following is not included in the definition of an investment entity as per IFRS 10 Consolidated Financial Statements?
A)Measures and evaluates the performance of substantially all of its investments on a cost basis.
B)Measures and evaluates the performance of substantially all of its investments on a fair value basis.
C)Commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation or investment income.
D)Obtains funds from one or more investors for the purpose of providing those investors with investment management services.

Accepted Answer

The definition of an investment entity according to IFRS 10 includes an entity that measures and evaluates the performance of substantially all of its investments on a fair value basis, not on a cost basis.

Question 7

The consolidation process involves making adjustments to the individual financial statements and ledger accounts of the entities within the group.

Accepted Answer

The answer of The consolidation process involves making adjustments to...

Question 8

Control is defined within AASB 10 Consolidated Financial Statements as the ability to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Accepted Answer

AASB 10 defines control as having power over the investee, exposure or rights to variable returns from involvement with the investee, and the ability to use power to affect those returns.

Question 9

A subsidiary is defined in AASB 10 Consolidated Financial Statements as a company that is controlled by another entity.

Accepted Answer

The answer of A subsidiary is defined in AASB 10...

Question 10

Juliet Ltd is a listed public company and has an 60% controlling interest in Marley Pty Ltd.Marley Pty Ltd is the parent of Butterscotch Pty Ltd.In which of the following situations will Marley Pty Ltd not be required to prepare consolidated financial statements?
A)If Marley Pty Ltd prepares separate financial statements that comply with IFRS.
B)If the other owners of Marley Pty Ltd have consented to the non-preparation of consolidated financial statements.
C)Where it is likely that there are external users dependant on the information.
D)Marley Pty Ltd would never be required to prepare consolidated financial statements.

Accepted Answer

If the other owners of Marley Pty Ltd have consented to the non-preparation of consolidated financial statements, Marley Pty Ltd may not be required to prepare them.

Question 11

Where a non-controlling interest exists in a subsidiary,AASB 12 Disclosure of Interests in Other Parties requires parent entities to disclose which of the following for each such subsidiary?
I Summarised financial information about each subsidiary.
II The proportion of ownership interests held by non-controlling interests.
III If the subsidiary is not wholly owned,the names of all other members.
IV The country of incorporation of subsidiaries.
A)I,II and IV only
B)II,III and IV only
C)I and IV only
D)I,II,III and IV

Accepted Answer

According to AASB 12 Disclosure of Interests in Other Parties, for each subsidiary where a non-controlling interest exists, the parent entity must disclose the proportion of ownership interests held by non-controlling interests as well as the country of incorporation of subsidiaries. Additionally, summarised financial information may be disclosed at the discretion of the parent entity. The names of all other members are not required to be disclosed, therefore option III is incorrect. As a result, the best choice is A, which includes I, II, and IV only.

Question 12

According to AASB 12 Disclosure of Interests in Other Entities,an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity is known as a:
A)controlling entity.
B)structured entity.
C)dominant entity.
D)rights entity.

Accepted Answer

A structured entity is defined in AASB 12 as an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. Therefore, the correct answer is B.

Question 13

Potential voting rights that cannot be exercised or converted until a future date or until the occurrence of a future event are not taken into account when determining an entity's capacity to control another entity.

Accepted Answer

This statement is true. This is because potential voting rights that cannot be exercised or converted until a future date or until the occurrence of a future event do not provide the holder with immediate control over the entity. Therefore, they cannot be taken into account when determining an entity's ability to control another entity.

Question 14

Where an entity controls another entity but holds less than half of the other entity's voting rights,AASB 12 Disclosure of Interests in Other Entities,requires which of the following disclosures be made?
A)The reasons why the ownership of the investee does not constitute control.
B)The nature of the relationship between the investor and investee.
C)The significant judgements and assumptions it has made in determining the nature of the interest in the other entity.
D)The amount of any repayments of borrowings between the investor and investee during the period.

Accepted Answer

The answer of Where an entity controls another entity but...

Question 15

Entities can only classify investments in other entities as subsidiaries if they actually exercise control over the financial and operating policies of an entity.

Accepted Answer

The answer of Entities can only classify investments in other...

Question 16

One of the major problems with control where an investor owns less than a majority of the investee's voting shares is the issue of temporary control.

Accepted Answer

When an investor owns less than a majority of the voting shares, they may still be able to exert temporary control over the investee through other means such as board representation or contractual agreements. However, this control may be finite and subject to change, creating uncertainty for the investor.

Question 17

Where an entity directly holds more than 50% of the voting rights of another entity,they are presumed to have power in accordance with AASB 10 Consolidated Financial Statements.

Accepted Answer

This is true as per the requirements of AASB 10 Consolidated Financial Statements. When an entity holds more than 50% of the voting rights in another entity, it is presumed to have control over that entity and must prepare consolidated financial statements.

Question 18

An entity can control another entity with an ownership interest of less than 50%,but only if there is a legally-binding contract in place between all investors that passes control to the entity.

Accepted Answer

The answer of An entity can control another entity with...

Question 19

The financial statements of a group are referred to as consolidated financial statements.

Accepted Answer

This is true. Consolidated financial statements combine the financial information of a parent company and its subsidiaries into one set of financial statements.

Question 20

Control is the criterion for determining whether a parent-subsidiary relationship exists.

Accepted Answer

Control is one of the key factors in determining whether a parent-subsidiary relationship exists. Other factors include ownership of shares and voting power. However, control is crucial because it allows the parent company to exert significant influence over the subsidiary's decisions and operations. In general, if the parent company owns more than 50% of the subsidiary's shares, it is presumed that control exists.

Quiz 18: Consolidation: Controlled Entities

Which of the following is not one of the factors in AASB 3 Business Combinations that guide the identification of the acquirer where 2 companies combine to form a new company?

Which of the following statements is correct?

AASB 10 Consolidated Financial Statements requires that control be non-shared.

Two entities A Limited and B Limited together form a third entity,C Limited.C Limited acquires A Limited and B Limited.In this situation,AASB 3 Business Combinations,adjudges that:

Which of the following is not included in the definition of an investment entity as per IFRS 10 Consolidated Financial Statements?